Not all circuits are the same

In rarefied debates over what Grokster means for secondary liability, it is easy to forget that there are differences in the circuits even on basic issues like pleading of such claims. A recent minute order from Illinois, reproduced below, illustrates one difference between the Second and Seventh Circuits:


06C3763 Roth vs. Cornerstone
Judge Amy J. St. Eve
CASE NUMBER 06 C 3763 DATE 10/6/2006
Roth vs. Cornerstone

MOTION by Defendant Thomas Rayburn to dismiss Rule 12(b)(6) Motion to Dismiss [31] is denied.


On July 12, 2006, Plaintiff Roth Architects, Inc. (“Roth”) filed the present one-count Complaint
alleging copyright infringement against Cornerstone Architects (“Cornerstone”) and the individual architects who own and operate Cornerstone, as well as Raycorp, Inc., (“Raycorp”) a residential property developer, Raycorp’s affiliate, Villas at the Preserve, LLC (“Villas”), and Thomas Rayburn (“Rayburn”), who owns and operates Raycorp and Villas. (R. 1-1, Compl. ¶¶ 1-3.) Before the Court is Rayburn’s Motion to Dismiss Roth’s Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the Court denies Rayburn’s motion.


LEGAL STANDARDS
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of a
complaint, not the factual sufficiency. Szabo v. Bridgeport Mach., Inc., 249 F.3d 672, 675-76 (7th Cir. 2001); see also Cler v. Illinois Educ. Ass’n, 423 F.3d 726, 729 (7th Cir. 2005) (motion to dismiss challenges complaint’s sufficiency). The Court will only grant a motion to dismiss if “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Centers v. Mortgage, Inc., 398 F.3d 930, 933 (7th Cir. 2005) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed.2d 80 (1957)). The Court must assume the truth of the facts alleged in the pleadings, construe the allegations liberally, and view them in the light most favorable to the plaintiff. Centers, 398 F.3d at 333.
Under Federal Rule of Civil Procedure 8(a)(2), a complaint need only include “a short and plain
statement of the claim showing that the pleader is entitled to relief.” This statement must “give the defendant fair notice of what the plaintiff’s claim is and the grounds upon which it rests.” Swierkiewicz v. Sorema N. A., 534 U.S. 506, 507, 122 S.Ct. 992, 995, 152 L.Ed.2d 1 (2002) (quoting Conley v. Gibson, 355 U.S. 41, 47,

BACKGROUND
Roth alleges that defendants Cornerstone, Raycorp, Villas, Rayburn, and others are willfully
infringing Roth’s registered copyright in certain architectural designs and drawings (the “Copyrighted Work”). (R. 1-1, Compl. ¶ 13) More specifically, Roth alleges that it created the Copyrighted Work for a client, who intended to submit plans for a housing development in Yorkville, Illinois (the “Yorkville Site”). (Id. ¶¶ 6-8.). On their face, Roth’s drawings state that they are protected by the Copyright Act and may not be used or distributed without its consent. (Id. ¶ 13.) Despite this notice, Roth alleges that the current owner of the Yorkville Site, Villas, and its affiliate, Raycorp, encouraged and facilitated Cornerstone to create an infringing copy of the Copyrighted Work (the “Accused Plans”). (Id. ¶¶ 12, 28.) Based on the Accused
Plans, Villas and Raycorp began the construction and marketing of a housing development at the Yorkville Site. (Id. ¶¶ 11, 13.) When Roth learned of these actions, it demanded that Defendants cease and desist their infringing conduct. (Id. ¶13.) Roth further alleges that Defendants have nonetheless continue to develop the Yorkville housing development. ( Id.)

Furthermore, Roth alleges that Rayburn owns and operates Raycorp and its affiliate, Villas. (Id. ¶ 3.) Specifically, Roth states that “Rayburn has and has had the right or the ability to supervise and control Raycorp’s activities.” (Id. ¶ 17.) Moreover, Roth asserts that Rayburn has a direct financial interest in the infringing acts of Raycorp’s and Villas’ activities. (Id. ¶ 16.) Roth thus alleges that Rayburn is vicariously liable for Raycorp’s and Villas’ infringement of Roth’s Copyrighted Work. (Id. ¶ 33.)

ANALYSIS
In his motion to dismiss, Rayburn argues that Roth has failed to adequately allege vicarious liability under the Copyright Act, 17 U.S.C. § 101, et seq. Rayburn specifically contends that the copyright infringement claim against him must be dismissed because Roth failed to allege any facts establishing his personal liability. Rayburn relies on a Seventh Circuit case from 1926 for the proposition that “in the absence of some special showing, the managing officers of a corporation are not liable for the infringements of such corporation, though committed under their general direction.” Dangler v. Imperial Mach. Co., 11 F.2d 945, 947 (7th Cir. 1926). Although the Dangler decision involved a patent infringement claim, the Seventh Circuit has applied its ruling to a copyright infringement case, as well. See Adventures in Good
Eating v. Best Places to Eat, 131 F.2d 809, 813-14 (7th Cir. 1942).

Some courts in this district have added a layer to the Dangler decision by concluding that it mandates a special pleading standard, namely, that plaintiffs must allege a corporate officer’s personal involvement in the alleged infringement – even though the Dangler court did not address any such pleading standards. See, e.g., Papa John’s Intern., Inc. v. Rezko, ___ F.Supp.2d ___, 2006 WL 1843121, at *3 (N.D. Ill. June 29, 2006) (citing cases); Syscon, Inc. v. Vehicle Valuation Servs., Inc. 274 F.Supp.2d 975, 976 (N.D. Ill. 2003). For instance, in Syscon, the court concluded that the plaintiff sufficiently pleaded the corporate officer’s
personal involvement with the infringement by specifically alleging that the officer personally directed and participated in the infringing conduct and also personally authorized that activity. Syscon, 274 F.Supp.2d at 976-77.

Here, Roth contends that because it alleged that “Rayburn has and has had the right or the ability to supervise and control Raycorp’s activities” and that Rayburn has a direct financial interest in the infringing acts of Raycorp’s and Villas’ activities, it has properly alleged vicarious liability under copyright law.

Indeed, under Ninth Circuit case law, a “defendant is vicariously liable for copyright
infringement if he enjoys a direct financial benefit from another’s infringing activity and ‘has the right and ability to supervise’ the infringing activity.” See Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004) (citation omitted) (emphasis in original). This is also the standard in other circuits. See, e.g., Gordon v. Nextel Commc’ns & Mullen Adver., Inc., 345 F.3d 922, 925 (6th Cir. 2003) (defendant vicariously infringes if he has ability to supervise the infringing conduct and obvious and direct financial interest in the infringement); Gershwin Publishing Corp. v. Columbia Artists Mgmt, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971) (defendant vicariously
liable for copyright infringement if he has “the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.”).

This is not the standard in this circuit, although the Seventh Circuit has discussed the Second Circuit’s Gershwin decision and rejected its application to trademark cases. See Hard Rock Café Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1150 (7th Cir. 1992). Thus, it appears that Dangler is controlling. See Syscon, 274 F.Supp.2d at 976 (“Despite its vintage, Dangler remains the law of this Circuit.”). As mentioned, however, the Dangler court did not address the pleading standards concerning vicarious liability.

The Court further notes that the Seventh Circuit decided Dangler eight years before Congress conferred upon the judiciary the power to promulgate the federal rules of civil procedure pursuant to the Rules Enabling Act of 1934. Sibbach v. Wilson & Co., 312 U.S. 1, 9-10, 61 S.Ct. 422, 424-25, 85 L.Ed. 479 (1941). Since then, the liberal notice pleading standards have evolved. Under the federal notice pleading standards, a complaint need only include “a short and plain statement of the claim showing that the pleader is entitled to relief” giving “the defendant fair notice of what the plaintiff’s claim is and the grounds upon which it rests.” Swierkiewicz, 534 U.S. at 507 (citation omitted); Fed.R.Civ.P. 8(a)(2). In other words, “[i]t is enough to name the plaintiff and the defendant, state the nature of the grievance, and give a few tidbits (such as the date) that will let the defendant investigate.” Kolupa v. Roselle Park Dist., 438 F.3d 713, 714 (7th Cir. 2006). As the Kolupa decision made clear “‘[a]ny district judge (for that matter, any defendant) tempted to write ‘this complaint is deficient because it does not contain...’ should stop and think: What rule of law requires a complaint to contain that allegation?’” Id.
(quoting Doe v. Smith, 429 F.3d 706, 708 (7th Cir. 2005)) (emphasis in original). “Any decision declaring ‘this complaint is deficient because it does not allege X’ is a candidate for summary reversal, unless X is on the list in Fed. R. Civ. P. 9(b).” Id. at 715. Simply put, vicarious liability in the context of copyright infringement does not fall under Rule 9(b) (“In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.”)
Viewing the facts as alleged in a light most favorable to Roth, Roth has met the liberal notice
pleading standards by identifying Rayburn and the nature of his grievance against Rayburn. See Kolupa, 438 F.3d at 714.

Specifically, Roth alleges that “Rayburn is vicariously liable for Raycorp’s and Villas’
infringement of Roth’s copyrights, and as such is jointly and severally liable for all amounts for which Raycorp or Villas may be found liable.” (Compl. ¶ 33.) Further, Roth supplies details of the alleged infringement, including how Raycorp encouraged and facilitated Cornerstone to create an infringing copy of the Copyrighted Work. (Id. ¶¶ 12, 28.) As such, Roth has sufficiently put Rayburn on notice of the claim against him and the grounds upon which it rests. See Swierkiewicz, 534 U.S. at 507. Accordingly, the Court declines to follow other courts in this district who have applied a make-shift heightened pleading standard under the circumstances. See FutureSource, LLC v. Reuters Ltd., 312 F.3d 281, 283 (7th Cir. 2002) (“The reasoning of district judges is of course entitled to respect, but the decision of a district judge cannot be a controlling precedent.”). The Court thus denies Rayburn’s motion.